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Johannesburg - Growth in Africa is likely to slow to its weakest pace in more than 20 years and some countries might even slip into recession, warned Maarten Ackerman, advisory partner and senior investment strategist at Citadel.
In recent years Africa has benefited from China’s industrialisation and need for natural resources. Given these strong tailwinds, economic growth in Africa has outpaced the majority of other regions in the world. Oil-exporting countries such as Angola, Nigeria and Ghana have fared even better.
However, over the past few years and with the global economy struggling in the aftermath of the 2008 financial crisis, many of these tailwinds have started to abate.
The slowdown in China has also spilled over into most other emerging markets. On the back of the softer global economic environment, most commodity prices have been under pressure and the commodity boom has come to an end.
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"Most countries with a dependence on the mining industry will struggle over the next few years and the recent sharp decline in the oil price means that growth for oil-exporting countries will certainly suffer," said Ackerman.
Africa’s two biggest economies, Nigeria and South Africa, are both expected to battle.
"Given the decline in the oil price, Nigeria will be forced to tighten monetary and fiscal policy, reducing growth potential going forward," said Ackerman.
SA prospects remain bleak
"South Africa’s growth prospects remain bleak given significant structural challenges - largely labour inflexibility and electricity supply – which are preventing the country from growing at its full potential."
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On the back of these challenges investors should moderate their growth expectations for Africa over the next few years, he cautioned.
While he remained concerned from a macro-economic perspective, he pointed out this may well present investors with the opportunity to find investment value.
Specifically, Citadel seeks such value within companies whose share prices have been dragged down by the negative sentiment, but which remain solid enterprises with robust earnings streams and "on-the-ground know-how".
"As always, investing in these ‘frontier markets’ carries unique risks. Any allocation of capital needs to be carefully researched and considered and should form part of a more diversified portfolio and overarching strategy," said Ackerman.
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